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The meteoric rise of China

Completely contrary to the current image of a dynamic and driven economy, China at the beginning of the 20th century was a backward, rural, poverty-stricken, feudal society torn apart by warlords and imperial interests. How then did this transformation from “a dinosaur that had survived into the wrong age” to the “fastest growing economy in the world” occur? China’s GDP has risen from Renminbi (Rmb) 362.4 billion in 1978 to Rmb 13.7 trillion in 2004 (both figures at current prices). That implies that the economy is 37 times larger than it was two and a half decades ago. Recently China built the largest hydroelectric dam in the entire world. The Three Gorges Dam not only has the ability to control floods, it can generate the power of 17 nuclear power-plants. Today there are more than eight million industrial enterprises in China. State-owned enterprises alone employ more than 24 million workers, and given that the average industrial growth rate is 12 percent, it comes as no surprise that China ranks third in worldwide factory output. The CIA fact-book estimates that the Chinese economy is worth $ 2.3 trillion, meaning it is the fourth largest economy in the world. In purchasing power parity terms, however, its GDP is estimated at more than $ 9 trillion, making it the second largest economy in the world.

Neo-liberals economists are eager to ascribe this success story to the economic reforms undertaken in 1979 under Deng Xiaoping. They claim that China’s economic performance before these reforms was poor and that the phenomenal take-off began with the move away from the state sector and towards embracing the role of the market. Moreover, this Chinese economic miracle has been cited as a further rationale for third world economies to follow the dictates of the IMF and embrace Structural Adjustment Policies. However, the facts are slightly more complicated and hold some vital lessons for our society today.

When the Communist Party of China came to power after three decades of civil war, in October 1949, it immediately embarked upon arguably the largest land reform of the 20th century. Through successive phases in the 1950s and 1960s the entire edifice of feudalism was completely uprooted throughout the vast territory of the People’s Republic of China. More than 45 percent of cultivatable land was redistributed from landlords to 60-70 percent of landless peasants. By destroying the socio-economic foundations of feudalism, the Chinese government created the best conditions for the free, wide, and full development of the economic potential of the country. That is why in 1953 with the completion of the very first land reforms that released millions of people from the bondage of serfdom, China’s economic growth kick-started at 15.6 percent. Industrial production increased at an average annual rate of 19 percent between 1952 and 1957 and national income grew at a rate of 9 percent a year. In the context of feudal and colonial China, this was, to borrow a phrase from the Chinese, “A Great Leap Forward”.

In the years 1960, 1961 and 1962, extremely adverse weather conditions and flooding caused enormous damage to agriculture. These years, particularly 1961, represented an outlier — caused by factors, especially at that time, beyond the control of society — in the general economic trends of China. One look at the figures of agriculture growth shows that, with the exception of two years of flooding, the phenomenal take-off in agriculture long precedes the liberalizing reforms of Deng Xiaoping.

Now let us look at the overall growth rates of China before and after the reforms. The average rate of growth of China from 1953 to 1978 (before the liberalization reforms) was 6.68 percent. However, if you take away the outliers of 1961 and 1962 when severe flooding caused massive economic devastation, the average rate of growth of the Chinese economy before the liberal reforms was 9 percent (it is not incorrect to take away this outlier since the devastation caused by the flooding, which is a non-human factor, distorts an accurate picture of the relative performance of the economy before and after the reforms). Now, given that the average rate of growth since the reforms, that is 1979 to 2005, was about 9.54 percent, one can see that although there is a difference of 0.5 percent points between the growth figures before and after the liberal-reforms, the difference is not large enough for us to think that China’s economic take off ‘began’ with the reforms. Rather it becomes clear that China’s economic take off has seen a continuous advance from 1953 to 2005 at an average growth rate of 8.13 percent (including the years of flooding). The only thing that becomes clear from an overall graphing of the growth figures is that the year to year volatility of growth figures has steadily declined over the last half century. This can principally be attributed to the increasing ability of the Chinese government to control the negative impact of flooding by the progressive building of water control mechanisms such as dams, barrages, and canals. Naturally, these dams were built not by the market but by state intervention.

The other anomaly in relation to the Chinese economy as a model of market-liberalization is the fact that other countries embracing the market has resulted in enormous increases in absolute levels of poverty, but in China levels of poverty have declined dramatically.

In the other regions of the world, market-liberalization has everywhere increased global poverty. World Bank figures indicate that with the exception of China (and to a lesser extent the Middle East), the number of people living below the poverty line has increased in all regions of the world in the decade of neo-liberal reforms.

Yet in China the number of people living below the poverty line, defined by per capita yearly net income of less than 683 yuan (84 US dollars), have dropped from 250 million in 1978 to 23.65 million by the end of 2005. The incidence of poverty in China dropped from 30.7 percent to 3.1 percent. Even Paul Wolfowitz, the new president of the World Bank, acknowledged “China, as we all know, has been the fastest growing economy in Asia for the past 20 years and has lifted more than 400 million people above $1 a day poverty levels in that time.” He further stated, “Since 1980, China accounted for 75 percent of poverty reduction in the developing world.” Even though the government allocates more than $ 2 billion to 592 nationally designated poor counties in order to reduce poverty under the “8-7 Poverty Reduction Plan” launched in 1994, the discrepancy between China and India is so large that one is compelled to admit that China must be doing something fundamentally different from IMF-sponsored Structural Adjustment Programmes. In fact the Chinese economy is so strong that despite the meltdown of all Asian Tigers — that subsequently turned out to be Paper Tigers — China did not even devalue its currency and continued growing as if nothing had happened.

These anomalies — first, the fact that China’s growth rate was extremely high even before the reforms, second, the fact that poverty in China has continued to decline dramatically whereas in all other regions that have embraced market reforms it has only increased, point to one singular conclusion: The real motor of Chinese progress is not merely the liberalization reforms of Deng Tsiaoping but the fact that revolutionary changes swept aside all forms of feudal exploitation and laid the foundation for an unprecedented economic take-off. The Chinese lesson for the Third World is clear: the path to continuous and uninterrupted progress lies in the final destruction of all remnants of feudalism.

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This entry was posted on May 28, 2006 at 2:29 am and is filed under Pakistani Politics.
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